International Economics and Economic Policy

, Volume 7, Issue 4, pp 423–436 | Cite as

Exchange rate volatility, international trade and labour demand

Original Paper

Abstract

The purpose of this study is to assess under what conditions exchange rate volatility generates a positive effect on an exporting firm’s labour demand. As the exchange rate volatility increases, so does the value of the export option, provided that firms are flexible with respect to international trade. Higher volatility increases the potential gains from trade and can increase the demand for labour. The firm’s trade flexibility can be interpreted as a real hedging strategy when financial markets are incomplete. In many newly industrializing countries and emerging economies financial markets are imperfect or risk sharing markets are just starting to develop at a rather slow pace.

Keywords

Exchange rate volatility Trade Labour demand Flexibility Risk aversion Real option Real hedge 

JEL Classification

F16 F23 F31 F41 

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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Fakultät für WirtschaftswissenschaftenTechnische Universität DresdenDresdenGermany

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